Memo:
From Nick Hanauer To: My Fellow Zillionaires
You probably don't know me, but like
you I am one of those .01%ers, a proud and unapologetic
capitalist.
I have founded, co-founded and funded more than 30
companies across a range of industries - from itsy-bitsy ones
like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor.
Then I
founded aQuantive, an Internet advertising company that was
sold
to Microsoft in 2007 for $6.4 billion. In cash.
My
friends and I own a bank. I tell you all this to demonstrate
that in many ways I'm no different from you. Like you, I have a
broad perspective on business and capitalism. And also like you,
I have been rewarded obscenely for my success, with a life that
the other 99.99 percent of Americans can't even imagine.
Multiple homes, my own plane, etc., etc.
You know what I'm
talking about.
In 1992, I was selling pillows made by my
family's business, Pacific Coast Feather Co., to retail stores
across the country, and the Internet was a clunky novelty to
which one hooked up with a loud squawk at 300 baud. But I saw
pretty quickly, even back then, that many of my customers, the
big department store chains, were already doomed.
I knew that as
soon as the Internet became fast and trustworthy enough - and
that time wasn't far off - people were going to shop online like
crazy.
Goodbye, Caldor. And Filene's. And Borders. And on and
on.
Realizing that, seeing over the
horizon a little faster than the next guy, was the strategic
part of my success.
The lucky part was that I had two friends,
both immensely talented, who also saw a lot of potential in the
web. One was a guy you've probably never heard of named Jeff Tauber, and the other was a fellow named
Jeff Bezos.
I was so
excited by the potential of the web that I told both Jeffs that
I wanted to invest in whatever they launched, big time. It just
happened that the second Jeff - Bezos - called me back first to
take up my investment offer.
So I helped underwrite his tiny
start-up bookseller. The other Jeff started a web department
store called Cybershop, but at a time when trust in Internet
sales was still low, it was too early for his high-end online
idea; people just weren't yet ready to buy expensive goods
without personally checking them out (unlike a basic commodity
like books, which don't vary in quality - Bezos' great insight).
Cybershop didn't make it, just another dot-com bust. Amazon did
somewhat better. Now I own a very large yacht.
But let's speak frankly to each
other. I'm not the smartest guy you've ever met, or the
hardest-working. I was a mediocre student. I'm not technical at
all - I can't write a word of code. What sets me apart, I think,
is a tolerance for risk and an intuition about what will happen
in the future. Seeing where things are headed is the essence of
entrepreneurship.
And what do I see in our future now?
I see pitchforks.
At the same time that people like
you and me are thriving beyond the dreams of any plutocrats in
history, the rest of the country - the 99.99 percent - is
lagging far behind.
The divide between the haves and have-nots
is getting worse really, really fast. In 1980, the top 1 percent
controlled
about 8 percent of U.S. national income. The
bottom 50 percent
shared
about 18 percent.
Today the top 1 percent share about
20 percent; the bottom 50 percent,
just
12 percent.
But the problem isn't that we have
inequality. Some inequality is intrinsic to any high-functioning
capitalist economy. The problem is that inequality is at
historically high levels and getting worse every day. Our
country is rapidly becoming less a capitalist society and more a
feudal society. Unless our policies change dramatically, the
middle class will disappear, and we will be back to late
18th-century France. Before the revolution.
And so I have a message for my
fellow filthy rich, for all of us who live in our gated bubble
worlds: Wake up, people. It won't last.
If we don't do something to fix the
glaring inequities in this economy, the pitchforks are going to
come for us. No society can sustain this kind of rising
inequality. In fact, there is no example in human history where
wealth accumulated like this and the pitchforks didn't
eventually come out.
You show me a highly unequal society, and I
will show you a police state. Or an uprising.
There are no
counterexamples. None. It's not if, it's when.
Many of us think we're special
because "this is America."
We think we're immune to the same
forces that started the Arab Spring - or the French and Russian
revolutions, for that matter. I know you fellow .01%ers tend to
dismiss this kind of argument; I've had many of you tell me to
my face I'm completely bonkers.
And yes, I know there are many
of you who are convinced that because you saw a poor kid with an iPhone that one time, inequality is a fiction.
Here's what I say to you: You're
living in a dream world. What everyone wants to believe is that
when things reach a tipping point and go from being merely
crappy for the masses to dangerous and socially destabilizing,
that we're somehow going to know about that shift ahead of time.
Any student of history knows that's not the way it happens.
Revolutions, like bankruptcies, come gradually, and then
suddenly. One day, somebody sets himself on fire, then thousands
of people are in the streets, and before you know it, the
country is burning. And then there's no time for us to get to
the airport and jump on our Gulfstream Vs and fly to New
Zealand.
That's the way it always happens. If inequality keeps
rising as it has been, eventually it will happen. We will not be
able to predict when, and it will be terrible - for everybody.
But especially for us.
***
The most ironic thingabout rising inequality is how
completely unnecessary and self-defeating it is.
If we do
something about it, if we adjust our policies in the way that,
say, Franklin D. Roosevelt did during the Great Depression - so
that we help the 99 percent and preempt the revolutionaries and
crazies, the ones with the pitchforks - that will be the best
thing possible for us rich folks, too. It's not just that we'll
escape with our lives; it's that we'll most certainly get even
richer.
The model for us rich guys here
should be Henry Ford, who realized that all his autoworkers in
Michigan weren't only cheap labor to be exploited; they were
consumers, too.
Ford figured that if he
raised
their wages, to a then-exorbitant $5 a day, they'd be
able to afford his Model Ts.
What a great idea. My suggestion to
you is: Let's do it all over again. We've got to try something.
These idiotic trickle-down policies are destroying my customer
base. And yours too.
It's when I realized this that I
decided I had to leave my insulated world of the super-rich and
get involved in politics. Not directly, by running for office or
becoming one of the big-money billionaires who back candidates
in an election. Instead, I wanted to try to change the
conversation with ideas - by advancing what my co-author, Eric
Liu, and I call "middle-out" economics.
It's the long-overdue
rebuttal to the trickle-down economics worldview that has become
economic orthodoxy across party lines - and has so screwed the
American middle class and our economy generally.
Middle-out
economics rejects the old misconception that an economy is a
perfectly efficient, mechanistic system and embraces the much
more accurate idea of an economy as a complex ecosystem made up
of real people who are dependent on one another.
Which is why the fundamental law
of
capitalism must be: If workers have more money, businesses have
more customers. Which makes middle-class consumers, not rich
businesspeople like us, the true job creators. Which means a
thriving middle class is the source of American prosperity, not
a consequence of it.
The middle class creates us rich people,
not the other way around.
Forbes labeled
it "Nick Hanauer's near insane" proposal. And yet, just
weeks after it was published, my friend David Rolf, a Service
Employees International Union organizer, roused fast-food
workers to go on strike around the country for a $15 living
wage.
Nearly a year later, the city of Seattle
passed
a $15 minimum wage. And just 350 days after my
article was published, Seattle Mayor Ed Murray signed that
ordinance into law. How could this happen, you ask?
It happened because we reminded the
masses that they are the source of growth and prosperity, not us
rich guys. We reminded them that when workers have more money,
businesses have more customers - and need more employees. We
reminded them that if businesses paid workers a living wage
rather than poverty wages, taxpayers wouldn't have to make up
the difference.
And when we got done, 74 percent of likely
Seattle voters in a
recent poll
agreed that a $15 minimum wage was a swell idea.
The standard response in the
minimum-wage debate, made by Republicans and their business
backers and plenty of Democrats as well, is that raising the
minimum wage costs jobs.
Businesses will have to lay off
workers. This argument reflects the orthodox economics that most
people had in college. If you took Econ 101, then you literally
were taught that if wages go up, employment must go down. The
law of supply and demand and all that.
That's why you've got
John Boehner and other Republicans in Congress insisting that if
you price employment higher, you get less of it.
Really?
"The thing about us
businesspeople
is that we love our customers rich
and our
employees poor."
Because here's an odd thing.
During
the past three decades, compensation for CEOs grew 127 times
faster than it did for workers.
Since 1950, the CEO-to-worker
pay ratio has increased 1,000 percent, and that is not a typo.
CEOs
used to earn 30 times the median wage; now they rake in 500
times. Yet no company I know of has eliminated its senior
managers, or outsourced them to China or automated their jobs.
Instead, we now have more CEOs and senior executives than ever
before.
So, too, for financial services workers and technology
workers.
These folks earn multiples of the median wage, yet we
somehow have more and more of them.
The thing about us businesspeople is
that we love our customers rich and our employees poor.
So for
as long as there has been capitalism, capitalists have said the
same thing about any effort to raise wages. We've had 75 years
of complaints from big business - when the minimum wage was
instituted, when women had to be paid equitable amounts, when
child labor laws were created.
Every time the capitalists said
exactly the same thing in the same way: We're all going to go
bankrupt. I'll have to close. I'll have to lay everyone off. It
hasn't happened. In fact, the data show that when workers are
better treated, business gets better. The naysayers are just
wrong.
Most of you probably think that the
$15 minimum wage in Seattle is an insane departure from rational
policy that puts our economy at great risk. But in Seattle, our
current minimum wage of $9.32 is already nearly 30 percent
higher than the federal minimum wage.
And has it ruined our
economy yet?
Well, trickle-downers, look at the data here: The
two cities in the nation with the highest rate of job growth by
small businesses
are San Francisco and Seattle. Guess which cities have the
highest minimum wage? San Francisco and Seattle. The
fastest-growing big city in America? Seattle. Fifteen
dollars isn't a risky untried policy for us.
It's doubling down
on the strategy that's already allowing our city to kick your
city's ass.
It makes perfect sense if you think
about it: If a worker earns $7.25 an hour, which is
now
the national minimum wage, what proportion of that
person's income do you think ends up in the cash registers of
local small businesses? Hardly any.
That person is paying rent,
ideally going out to get subsistence groceries at Safeway, and,
if really lucky, has a bus pass. But she's not going out to eat
at restaurants. Not browsing for new clothes. Not buying flowers
on Mother's Day.
Is this issue more complicated than
I'm making out? Of course. Are there many factors at play
determining the dynamics of employment? Yup. But please, please
stop insisting that if we pay low-wage workers more,
unemployment will skyrocket and it will destroy the economy.
It's utter nonsense. The most insidious thing about trickle-down
economics isn't believing that if the rich get richer, it's good
for the economy. It's believing that if the poor get richer,
it's bad for the economy.
I know that virtually all of you
feel that compelling our businesses to pay workers more is
somehow unfair, or is too much government interference. Most of
you think that we should just let good examples like Costco or
Gap lead the way. Or let the market set the price. But here's
the thing.
When those who set bad examples, like the owners of
Wal-Mart or McDonald's, pay their workers close to the minimum
wage, what they're really saying is that they'd pay even less if
it weren't illegal. (Thankfully both companies have recently
said they would not oppose a hike in the minimum wage.)
In any
large group, some people absolutely will not do the right thing.
That's why our economy can only be safe and effective if it is
governed by the same kinds of rules as, say, the transportation
system, with its speed limits and stop signs.
Wal-Mart is our nation's largest
employer with some 1.4 million employees in the United States
and more than
$25 billion in pre-tax profit.
So why are Wal-Mart employees
the largest group of Medicaid recipients in many states?
Wal-Mart could, say, pay each of its 1 million lowest-paid
workers an extra $10,000 per year, raise them all out of poverty
and enable them to, of all things, afford to shop at Wal-Mart.
Not only would this also save us all the expense of the food
stamps, Medicaid and rent assistance that they currently
require, but Wal-Mart would still earn more than $15 billion
pre-tax per year.
Wal-Mart won't (and shouldn't) volunteer to
pay its workers more than their competitors. In order for us to
have an economy that works for everyone, we should compel all
retailers to pay living wages - not just ask politely.
We rich people have been falsely
persuaded by our schooling and the affirmation of society, and
have convinced ourselves, that we are the main job creators.
It's simply not true. There can never be enough super-rich
Americans to power a great economy. I earn about 1,000 times the
median American annually, but I don't buy thousands of times
more stuff.
My family purchased three cars over the past few
years, not 3,000.
I buy a few pairs of pants and a few shirts a
year, just like most American men. I bought two pairs of the
fancy wool pants I am wearing as I write, what my partner Mike
calls my "manager pants." I guess I could have bought 1,000
pairs. But why would I?
Instead, I sock my extra money away in
savings, where it doesn't do the country much good.
So forget all that rhetoric about
how America is great because of people like you and me and Steve
Jobs. You know the truth even if you won't admit it: If any of
us had been born in Somalia or the Congo, all we'd be is some
guy standing barefoot next to a dirt road selling fruit. It's
not that Somalia and Congo don't have good entrepreneurs. It's
just that the best ones are selling their wares off crates by
the side of the road because that's all their customers can
afford.
So why not talk about a different
kind of New Deal for the American people, one that could appeal
to the right as well as left - to libertarians as well as
liberals?
First, I'd ask my Republican friends to get real about
reducing the size of government. Yes, yes and yes, you guys are
all correct: The federal government is too big in some ways. But
no way can you cut government substantially, not the way things
are now.
Ronald Reagan and George W. Bush each had eight years
to do it, and they failed miserably.
Republicans and Democrats in
Congress can't shrink government with wishful thinking. The only
way to slash government for real is to go back to basic economic
principles: You have to reduce the demand for government. If
people are getting $15 an hour or more, they don't need food
stamps. They don't need rent assistance.
They don't need you and
me to pay for their medical care. If the consumer middle class
is back, buying and shopping, then it stands to reason you won't
need as large a welfare state. And at the same time, revenues
from payroll and sales taxes would rise, reducing the deficit.
This is, in other words, an
economic approach that can unite left and right. Perhaps
that's one reason the right is beginning, inexorably, to
wake up to this reality as well.
Even Republicans as diverse
as Mitt Romney and Rick Santorum recently came out in favor
of raising the minimum wage, in defiance of the Republicans
in Congress.
***
One thing we can
agree on - I'm sure of this -
is that the change isn't going to start in Washington.
Thinking is stale, arguments even more so. On both sides.
But the way I see it, that's all
right. Most major social movements have seen their earliest
victories at the state and municipal levels. The fight over
the eight-hour workday, which ended in Washington, D.C., in
1938, began in places like Illinois and Massachusetts in the
late 1800s.
The movement for social security began in
California in the 1930s. Even the Affordable Health Care Act
- Obamacare - would have been hard to imagine without Mitt
Romney's model in Massachusetts to lead the way.
Sadly, no Republicans and few
Democrats get this.
President Obama doesn't seem to either,
though his heart is in the right place. In his State of the
Union speech this year, he mentioned the need for a higher
minimum wage but failed to make the case that less
inequality and a renewed middle class would promote faster
economic growth. Instead, the arguments we hear from most
Democrats are the same old social-justice claims.
The only
reason to help workers is because we feel sorry for them.
These fairness arguments feed right into every stereotype of
Obama and the Democrats as bleeding hearts. Republicans say
growth. Democrats say fairness - and lose every time.
But just because the two parties
in Washington haven't figured it out yet doesn't mean we
rich folks can just keep going. The conversation is already
changing, even if the billionaires aren't onto it. I know
what you think: You think that Occupy Wall Street and all
the other capitalism-is-the-problem protesters disappeared
without a trace. But that's not true.
Of course, it's hard
to get people to sleep in a park in the cause of social
justice. But the protests we had in the wake of the 2008
financial crisis really did help to change the debate in
this country from death panels and debt ceilings to
inequality.
It's just that so many of you
plutocrats didn't get the message.
Dear 1%ers, many of our fellow
citizens are starting to believe that capitalism itself is
the problem. I disagree, and I'm sure you do too.
Capitalism, when well managed, is the greatest social
technology ever invented to create prosperity in human
societies.
But capitalism left unchecked tends toward
concentration and collapse. It can be managed either to
benefit the few in the near term or the many in the long
term.
The work of democracies is to bend it to the latter.
That is why investments in the middle class work. And tax
breaks for rich people like us don't. Balancing the power of
workers and billionaires by raising the minimum wage isn't
bad for capitalism. It's an indispensable tool smart
capitalists use to make capitalism stable and sustainable.
And no one has a bigger stake in that than zillionaires like
us.
The oldest and most important
conflict in human societies is the battle over the
concentration of wealth and power. The folks like us at the
top have always told those at the bottom that our respective
positions are righteous and good for all. Historically, we
called that divine right. Today we have trickle-down
economics.
What nonsense this is. Am I
really such a superior person? Do I belong at the center of
the moral as well as economic universe? Do you?
My family, the Hanauers, started
in Germany selling feathers and pillows. They got chased out
of Germany by Hitler and ended up in Seattle owning another
pillow company. Three generations later, I benefited from
that.
Then I got as lucky as a person could possibly get in
the Internet age by having a buddy in Seattle named Bezos.
I
look at the average Joe on the street, and I say,
"There but
for the grace of Jeff go I."
Even the best of us, in the
worst of circumstances, are barefoot, standing by a dirt
road, selling fruit. We should never forget that, or forget
that the United States of America and its middle class made
us, rather than the other way around.
Or we could sit back, do
nothing, enjoy our yachts... and wait for the pitchforks...